US dollar key forecast: neutral
- The US dollar (Via the DXY index) has accumulated since the U.S. Non-Farm Payroll Report in July on the rise in US government bond yields and Fed interest rate hikes.
- AThe hot inflation report is expected, and rates markets are begins to move in a way that suggests that there could be a more cunning Fed on the horizon; but any upcoming policy changes saab limited to reduce the purchase of assets.
- According to ttheme IG customer mood index, The US dollar has a mixed bias heading for the second week of August.
US dollar backup
The US dollar (via the DXY index) rose after the US non-farm payroll in July due to higher US government bond yields and a jump in Fed interest rates. EUR / USD exchange rates fell at the same time -0.92% USD / JPY prices added + 0.47%. Even GBP / USD Recently, resilient interest rates have fallen by -0.28%. The question for next week is simple: wwill the July US Inflation Report (CPI) help strengthen the US dollar rally?
Unlike the June U.S. Inflation Report (CPI), hot inflation readings are more likely to spread to higher U.S. Treasury yields – although most Federal Reserve officials think inflation is “largely temporary.” In some ways, this time is different: more evidence that high inflation persists may help US Treasury yields to maintain its rise, and thus the recent rise in the US dollar.
US Economic Calendar Quiet and then select
Moving towards mid-August, we see a significant risk of events outside the United States. But the calendar has been reloaded: neither Monday nor Tuesday provides really important data; from Wednesday to Friday includes the entire event risk.
- On top Wednesday, August 11, July The US Inflation Report (CPI) is published and higher inflation rates are expected to continue. Also on Tuesday is the US federal government’s monthly budget report July is scheduled for publication.
- On Thursday, August 12, weekly claims for the unemployed are due, while the U.S. July Producer Price Index (PPI) – the cost of goods at the factory gate – is due.
- An initial US consumer sentiment survey for Michigan is expected in August on August 13. The report is the latest update on consumer inflation expectations.
Atlanta Fed GDPNow 3Q’21 Growth Forecast (August 6, 2021) (Figure 1)
Based on data received so far 3Q’21, Atlanta Fed GDPNow the economic growth forecast has been lowered from + 6.1% to + 6% per year. After last week’s data “since the decline in real gross domestic product growth in the third quarter +26.5% et +25.2% partially offset by current growth in real expenditure on personal consumption in the third quarter and increases in real government expenditure in the third quarter +3.8% and +2.8%respectively until +3.9% and +3.3%accordingly.“
The next update of the 3Q’21 Atlanta Fed GDPNow growth forecast is expected to take place on Tuesday, August 17th.
Absolutely The US economy data forecasts, see DailyFX economic calendar.
U.S. Treasury Yield Curve (1 Year to 30 Years) (August 2019 to August 2021) (Figure 2)
Historically speaking, The combined effect of rising US Treasury interest rates and Fed interest rate coefficients has created a more favorable trading environment for the US dollar.
It is still the focus of attention
On the back of strong US labor market reports, the July US inflation report focuses on the Federal Reserve’s narrative that price pressures are “largely temporary”. Another hot inflation report is expected and interest markets will start moving in a way that suggests that a more cunning Fed could be on the horizon; however, future changes to the rules will be limited to reducing asset purchases.
We can measure whether a Feeded the interest rate is estimated using Eurodollar contracts, examining the difference between the borrowing costs of commercial banks over a certain period of time in the future. Figure 1 below shows the difference in borrowing costs – the margin August Agreements for the year and December 2023 to assess where interest rates are moving in the interim period August 2021 and December 2023.
EURODOLLAR FUTURES PRESENTATION OF THE CONTRACT (AUGUST 2021-DECEMBER 2023): DAILY PRICE TABLE (February-August 2021) (Chart 3)
With them The highest level in July follows June In the US non-farm payroll report, interest rate hikes were 107 basis points lower by December 2023; at this week’s lowest level, discounts were only 69 bps. Following a July report by US non-farm payrolls, prices are now 87 basis points. In other words, three full rates are expected to increase, and by the end of 2023, there is a 48% probability of four interest rate hikes.
CFTC COT US dollar futures positioning (August 2020 to August 2021) (Figure 4)
Finally, looking at the positioning, according to the CFTC’s week-end COT August 3 speculators increased their net long US dollar positions to 18,880 contracts from 16,561 contracts. The net long position in the US dollar is now at its highest level since the second week of March 2020 (the peak of the coronavir pandemic in the financial markets).
– Written by Christopher Vecchio, CFA, Senior Currency Strategist